Lockheed Martin Corporation (LMT) Earnings Call Transcript & Summary

Good morning, guys. Thank you very much for joining us. This is our 46th Annual A&D Conference, my first year leading it. Obviously, Cai von Rumohr had covered Lockheed for a long time. My name is Gautam Khanna. I'm the research analyst at TD Cowen. Always feel free to reach out to me if you have any questions. We're very pleased to have with us the Chief Financial Officer of Lockheed Martin Jay Malave. Jay, welcome.

Thank you. Thank you for having us.

Jay is just going to start off with some safe harbor comments, and we're going to get right into it.

Yes, the obligatory comments that my lawyers tell me I have to say every time, so I will. Statements made today that are not historical fact are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law. Actual results may differ materially from those projected in the forward-looking statements. Please see Lockheed Martin's SEC filings including our 2024 Form 10-K for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements.

Terrific. That's great. I appreciate it. Yes.

All right.

Great. Well, Jay, before we get into some of the more fun topics, I was wondering that one of the points of confusion of the call was the cash flow bridge, if you will, from into '25.

Yes, sure. Let's I mean be right in the forehead with cash flow. Okay. Let's go with it. Yes. So cash flow, just to maybe a baseline the audience, we provided guidance for 2025 of between $6.6 billion to $6.8 billion. At the midpoint, that represents 9% year-over-year growth when you adjust 2024 for the pension contribution that we made at the end of the year. So a pretty solid outlook there. Now the questions that we had received from investors since we laid out the guidance was, shouldn't it have been closer to around $7 billion or $7 billion plus. And when you look at the year-over-year growth here, we do get some tailwind from the F-35, some recovery of the withholds, higher aircraft deliveries. So there's a tailwind. We've talked about that being in the range of $1 billion. So if you start from a, say, last year on an adjusted basis, $6.1 billion, that alone is $1 billion. Now that was -- you remember, in 2024, one of the ways that we achieved our cash flow of $6.1 billion on an adjusted basis was we had some pretty significant international advances. And that was to the tune of about $600 million. So that's a headwind. So say, net-net, there are $400 million of a tailwind -- now we've also talked about cash flow net income growth, which we are growing this year. We've also talked about the benefit of the R&D tax capitalization as that headwind continues to go down, that provides a tailwind close to $200 million. We also had -- we're also assuming a level of productivity benefit in our working capital productivity of 1 day of working capital improvement. And just to kind of baseline people, we ended the year of 2024 around 35 days. So we're taking -- it's very good. It's amongst the best, if not the best in the industry already. So we're planning on taking 1 day out. So when you put that math together, that rolls you back up to about $7 billion, $7.1 billion. The things that bring us back down into the range between $6.6 billion to $6.8 billion are 2 items, which when you look at our sales guidance, we were 4% to 5% growth. So coming off of 5% growth pretty solid. On constant productivity, our working capital wants to grow over that period of time. So on a constant productivity, our working capital is going to grow about $300 million. So as I mentioned, we've got 1 day of productivity in that when you build up to $7.1 billion, that's $200 million. One day is equal to about $200 million. But net-net, that's still an outflow.

Got you.

The second element is our increasing in investment in working cap -- I mean, in CapEx. So this year, our guide is about $1.9 billion in that ballpark. That's $150 million to $200 million of growth year-over-year. So that brings us back down into the $6.6 billion to $6.8 billion range. Now is it possible that we can do $7 billion in 2025? Yes, it's possible. One is what we have for our plan for CapEx is the highest we've ever done. So it's possible we don't get to that. And you could say maybe there's $100 million there, maybe it's higher than what we've done in previous years, but not as high as $1.9 billion. So it comes back down to, like, say, $1.8 billion. So it's probably $100 million of opportunity there. The other opportunity would be getting another day of working capital productivity. So that's another $200 million. So from a midpoint of $6 billion $7 billion, you can walk yourself back up to $7 billion with an incremental day of working capital productivity and a little bit lighter on the CapEx, which probably wouldn't really have any meaningful impact on our operational capabilities. So it would probably be fine. And so that's something that we'll evaluate probably midyear to see what our progress is in our productivity and where our year-to-date spend is on CapEx. So that's why we came up with that range of $6 billion to $6.8 billion.

Maybe just to double-click on that. So on the CapEx that you're -- the growth CapEx, maybe if you could talk about where it's being deployed? And what are the lead times to getting this in place?

Yes. I mean you're looking at -- in many cases where its facility modernization, you're looking at a couple of years of investment of kind of phasing through projects. I'll give you an example, we are moving our manufacturing capability for the fleet ballistic missile from California to Florida, standing up a brand-new facility there. We're also making in space some significant investments in our Valley Forge campus for incremental volume in our glide body business there. We are the glide body provider for the Sentinel program. And there's a few other programs there as well. We are -- our Missiles and Fire Control business has a lot of production ramp. We recently had completed a new facility for JASSM and LRASM production in Troy, but there's still incremental CapEx across the portfolio in Missiles and Fire Control to meet this continued demand that we're seeing. So it's pretty much really across the board where we're seeing -- it's part of this walk up to deliver this mid-single-digit growth target that we have over the next couple of years and really over the next 3 to 5 years and making sure that we're facilitized for that.

And if there was $100 million -- if you underspend by $100 million in CapEx this year, does that just move into '25?

It would move into next year. And typically, that is what happens. We have a plan that we typically don't achieve, and it just continues to slide to the right. Got you. So I think $100 million is pretty manageable.

Okay. On working capital, to your point, you guys are already kind of near best-in-class. Where is the opportunity there?

Yes. For us, when you look at our receivables collection days, it's very good. It's solid. You look at our -- where the opportunity for us is in our contract assets, so the unbilled receivable, the buildup of inventory, if you will. There's a lot of opportunity there across really the entire portfolio, but I'd say the largest opportunity would be in our platform businesses at Aeronautics and Sikorsky. And that is really driving throughput making sure that we can hit production schedules on time. If you think about it, when you've got an aircraft platform build, you are in final assembly, you are dependent on a whole value chain of events to make sure that you can meet your schedule requirements. And so it's possible that you have a hiccup in a supplier here, hiccup in a supplier there, that sets you back, which causes you to hold inventory longer than you otherwise want to in your schedule would stay. So I'd say that there's plenty of opportunity in terms of synchronization of those value chains in the platform businesses. But even in our businesses, which I would categorize as best-in-class working capital management, both at MFC and our space, on the contract assets, there's still opportunity to make improvements there. And so again, those are kind of run-of-the-mill type of production type of improvement opportunities. that not only help you from a cost perspective, but also make the throughput process faster and you can turn things quicker and free up cash.

Got you. But to your point, it's across the portfolio. It's not like there's any one pocket that's particularly large.

No, like I said, the platform business is with the largest opportunities that we can make, but there's opportunity across the company.

And where do you think the limit is in terms of working capital days?

I would say -- so we're at 35 today. I think a reasonable goal for us is to be around 30. And that it's probably a 5-year journey. It's not a 2-year journey, but I think we can get to 30.

Got you. All right. That's very helpful. Just sticking on cash, obviously, you prefunded the pension contribution for 2025. What's sort of the longer-term plan on pension? Are you going to do this again?

We're keeping our options open. As I mentioned, before our first method of -- our first approach to pension contributions is seeing what we can do to manage it organically. And so when you think about how I'm trying to juggle it is I've got like a, say, call it, a $6 billion threshold of free cash flow. And what we've told investors over a period of time is that between our dividend and share repurchase, we'd like to kind of hold it at a run rate around $6 billion. And so I can -- that's my kind of, call it, my North Star that I work with. And I think to the extent that I can still deliver that and fund my pension organically, then that's something that I would pursue. To the extent that, that becomes a little bit more challenged, then of course, you know we've got a pretty strong balance sheet that we can probably take some out. But my first course of action is try to deal with this organically while still providing the returns to investors that we've committed.

That makes sense.

And I think we can.

Okay. Yes. And find pension particularly boring, but just to round it out, asset returns in the pension plan. Can you talk about what happened there last year?

Yes. we had a tough year in 2024. When you look at our asset allocation, we are kind of almost like it's maybe 1/3, 1/3, 1/3, 1/3 in public equities, 1/3 in private assets and then 1/3 in fixed income type assets. And so when you go to public equities, we weren't as heavily weighted on Magnificent 7. We're a little bit more diversified there. And so we did not see the same level of returns as you saw that was kind of carried by the Magnificent 7. When you look at private equity, private equities and private assets have been challenged over the past couple of years. You can't really move those assets around that easily just don't have the same liquidity as public assets, as you know. And then with kind of interest rates where they've done, kind of the returns weren't all that fantastic in fixed income either last year. So if you go back, you look at it over a 5-year period, our target returns are 6.5%. We're right around that target over that period of time. And so we've got some ebbs and flows to it. We continue to monitor it and make sure that we've got the right asset allocation also based on our path to get fully funded. And so it's -- there's a number of variables that go into the equation. But certainly, asset returns is something that we're looking to improve.

Understood. Yes, that was the big kind of variance. Let's actually talk about the business again. Lots of confusion about how the new administration may approach industry. Obviously, we lot with DOGE. I'm just curious, what are your initial impressions on how things might actually change, if at all?

Well, I think the industry, and particularly Lockheed Martin have been advocates for change for quite some time. There have been studies and advisory groups of how you change defense acquisition over the last 20 to 25 years, but not much has changed as a result for some -- it just got caught up in the implementation stage. I think that this presents a catalyst for actual change. And I think the timing is ripe for change. If you want to kind of keep pace with the near-peer threats, we do need to move more agilely as an industry and both an industry as well as in the acquisition process. And kind of some examples that come to mind for me is the -- I'm of the belief that we -- the defense acquisition should just really follow more commercial practices. And I think that would unlock a lot of agility and speed. And you think about some of the things just in the financial realm, but things like cost accounting standards, allowability versus unallowability, cost accounting standards, you have to talk about -- you have to explain how you allocate costs. And at the end of the day, if you've got a competitive proposal, bidding proposal process, why is that even relevant? You've got enough competition. And so we live at Lockheed Martin being a traditional prime, we live in both realms, which I don't think is -- I think it's suboptimal. So on the one hand, we have to deal make proposals based on all the compliance requirements and cost accounting standards and TINA and all those type of things. In the other case, sometimes we're over living in the commercial world. I just think it's suboptimal. We should just bring everything over to commercial. I think the acquisition community is just if not more sophisticated than commercial buyers. I've worked in commercial aerospace for a long period of time. I think they know how to manage competition. And so I don't think they need the same level of protections they may have had in the past. When you talk about maybe you shifted over to maybe sole source, I even think that private industry in commercial industry deals with that today where even in a sole-source environment, you have things where you can leverage the future platform. If you don't play ball with me today on this program, well, then you may not be on the bid list for the next program. So there's ways to keep things in check even when you have a supplier who is a sole-source provider. Now that doesn't mean that you can't have things like some type of auditing to make sure the costs are reasonable. And I think that probably would be appropriate in a sole source. But you think about it, you've got TINA requirements where we enter into contracts that are multibillion-dollar contracts. And today's TINA requirements is that we have to certify the cost and pricing data for anything that is above $2 million. So a $3 million subcontract or supplier deal on a $2 billion deal, we have to go and get that level of detail and certify it. It's just incredibly time consuming. And the value add is de minimis, if anything. And so there's just a lot of opportunity, I think, to just really streamline that. I think just in the acquisition process itself, if you adopt a little bit more commercial type, it would probably just reduce some of the requirements. And so there's -- when you have -- you receive a request for proposal, there are a lot of requirements in there that you have to meet. And maybe if some of those are more output-based, meaning I want this capability and I want it to be fielded by such a date, I want it to do this, the stuff in between in terms of the requirements that they have to follow through, maybe you don't need that as much. You can provide the lots as long as there's a confidence level that they're going to get what they want on time and on budget. So -- and then through what I would also probably argue is through program execution say a development program. There are a lot of steps where you have to pause and you have to do testing. There's a lot of testing requirements. Again, on the one hand, it provides a level of higher fidelity of the success of a particular program, but it significantly slows it down. If speed is your objective, then there's probably areas where you can do some level of interim testing, but not to the same degree that can give you just same level of confidence or similar confidence, but enables you to move quicker. And then even on the production side of it, there's various stages of a production cycle depending on what is being delivered. where there are a lot of also inspection steps. And I think that once you reach a full rate production where the quality of whatever it is you're providing is fairly high, you could probably provide some relaxation of those interim testing requirements. And so there's always going to be -- and there should be something at the back end where someone representing the government has to sign off that this delivery of this thing that you just manufactured meets the specifications of what is required. But at the interim steps, probably -- again, if you're delivering at a high quality, they should be able to relax those. So I think just all the way through the process of bidding proposal through the acquisition of it and the management of a program, I think there's just a lot of opportunity to really streamline things.

It's interesting you mentioned a number of things that the LHX CEO publicly revealed in his letter, the TINA threshold, acquisition reform, is there a receptive audience in your opinion at this point? Or is that I mean they have been engaged with Lockheed Martin.

I think so -- it -- when you work with people in the acquisition community, they understand and they generally agree it's difficult to -- when you're dealing with the size of the organization to get a complete consensus. So you're always going to have a certain level of holdouts. There's always going to be a reason to maintain the regulatory framework as it exists. There's always going to be a reasoning for it. The question is, can you still meet the same objective just through a different way. And it's my hope that through this DOGE that we'll get -- it becomes a catalyst for that change. And I think in the end, what are we trying to do? We're trying to field a capability to our end user, the war fighter as quickly at the highest quality at the lowest cost as possible. And that's what the acquisition process should be geared towards.

That makes a lot of sense. One of the things, obviously, when a customer buys industry structure reflects how customers buy things. And so naturally, a lot of investors are concerned that DOGE and the new administration might be a threat to incumbent contractors like Lockheed who have adapted to the way the world actually is. I'm just curious like how would you reorganize in that environment, if we do actually see some real procurement reform change.

Well, I mean, we would become a leaner organization. The compliance costs would come down significantly. And so ultimately, the cost of us delivering capability would come down, which makes it easier for the customer to afford either more of whatever it is they're buying or by other things, too, because the cost of what they're going to be buying just comes down, in my opinion, when you really reduce that burden. The other thing I would say is that I think that investors have this view that Lockheed Martin and other traditional primes that their moat is the ability to navigate this regulatory framework and they're really good at, they're experts at. We've been doing it for such a long time. And yes, we know how to navigate it. But I don't view that as being as a primary moat for a Lockheed Martin. I think if you have to rely on a regulatory framework to be competitive, I don't think that's a strong business model. What makes, I think, Lockheed Martin unique is our technical capability. We are -- you think about it, high-end systems integrator. We operate in every single domain. And what that gives us is mission experience and mission expertise in every single domain. at the highest level, the systems integration level. So we get to see how everything comes together. We're able to provide that feedback to our customer. And we're able to have the dialogue with our supply chain and suppliers in terms of how they fit in the overall framework of an entire system. That is not easy to replicate. And that is what our moat is. It's the systems integration capability of this company.

That's an interesting point. I'm curious, and this is the hypothetical, but how would the portfolio be different if, in fact, every one of your asks gets implemented? Would all the businesses that currently are part of the portfolio still fit? Are there things that where more or less...

Yes, I think. So I think -- especially in this day and age, you think about Lockheed Martin, we've got our 4 business segments. We've got Rotary Mission Systems. We've got Aeronautics Missiles and Fire Control and Space. And historically, they've operated pretty independently. They provide a mission capability or elements of emission capability, system capability in that particular domain that they operate. But with things like joint all domain command and control, at Lockheed Martin, we call 21st Century Security. What we've been trying to do is provide mission capability and have a dialogue to the customer and a complete mission set. So when we talk to the customer, we talk about -- particularly as I say, we're talking about a Joint All Domain Command and Control. First, we got AIR6500 in Australia. We got Defense of Guam systems that were under contract for today. We have a dialogue holistically. Here's what space can provide to this capability. Here's what our ground radar systems can provide to this capability. Here's what our PAC-3 integrated air and missile defense can provide this capability Here's where Aegis Ashore System can provide in terms of tying all these things together. So as I mentioned before, I talk about what our moat is our systems integration capability. It fits well in this age of really making platforms in systems and sensors connected making them smarter in delivering situational awareness much quicker than they've ever had before and ultimately delivering an effect faster than your adversary. And so that's what makes, I think, our portfolio much more unique and makes them all a good fit for this day and age.

I appreciate that color. If we could talk about programs for a second specific program. So last year, there was a classified aero charge of some consequence in a couple of other quarters, including Q4. Obviously, MFC, you guys have talked a lot about that. Maybe if you could just talk about some of the RED programs and how they're faring now what the cash impacts of those charges will be...

Yes. I mean when you talk about -- I talk about the programs that we've mentioned in our 10-K and those 2 programs, Aeronautics classified MFC classified at Sikorsky, Canadian Maritime Helicopter Program in the Turkish Utility Helicopter Program. I can talk about all 4. We -- in Q4, we recorded the charges for both the Missiles and Fire Control program as well as the Aeronautics. All in, on Missiles and Fire Control, we've recorded a little bit over $1.45 billion all in. That includes 2023. And on Aeronautics, with the $410 million we recorded in the fourth quarter were $825 million of losses all in on that program as well. Let me talk about the Aeronautics one because I think that one, I think people have a little bit more maybe skeptical view of that than we do. In the third quarter, we recorded $80 million, and that caused us to have to take another look at the program because that was a decent sized number. And we went -- we spent a fair amount of time with the team in -- at Aeronautics. And we walked through -- walk us through what your risk profile is from here on out to complete these deliverables. And then we had a separate day of okay, walk us through your opportunities you can to mitigate those risks. And so we put those together, but we looked at them independently. And what we said was, okay, we're going to take the high end of what you told us for your risk. And we really haircut significantly the opportunities they had to mitigate the risk. And so that -- the $410 million charge was the most conservative assessment of our risk on that program to date. And I know people are saying, well, other companies, that's what they said. You guys said derisk other companies have said that, and look at what's going on, just like it just keeps on dripping. What I can say there is that, again, there's no -- I can't speak in absolutes. So there's no such thing as absolutes, but I feel confident that we did the most comprehensive analysis based on available data that we have at this point in time. And we made the most conservative assessment that went into that charge in the fourth quarter. Secondly, what we've done is we put just other steps in place. So we have more of a continuous monitoring program, which consists of resources outside the program, including resources outside of Aeronautics. Well, which will make more continuous review of the program, where they are and they can give a little bit more early warning to the extent that they seem to be falling off track, what they can do. We've added additional technical resources, both executive and nonexecutive resources to support these areas that we have identified as risk to help them get through some of the challenges that they have. And then we've also added things like automated testing in certain areas. And so I think the combination of taking a more conservative approach on the losses or the cost as well as bringing in this additional resources, adding the continuous monitoring to the program. We feel like we've got it pretty well contained. And so that's where we stand on the Aeronautics program. And this is a Fire Control. Again, you can't speak in absolutes, but we feel like we've had a pretty good handle on the cost of that program. There were sufficient facts and circumstances that had accumulated over a period of time, which we felt triggered the recognition of forward losses associated with the future deliveries of deliverables. And so we recorded that loss. Again, we feel that we've got a pretty good beat and handle on that cost over the next number of years for that program. On the Canadian Maritime helicopter program, we had reached an interim agreement with Canada, on just how we're going to manage that program going forward. Again, it's an interim agreement. And our ultimate goal with them is to get a full restructure of the contract, which would be a win-win. So there are certain things that we're looking for to make sure that we can recover our contract asset. We ended the year maybe around $800 million to $900 million in the contract asset, while at the same time giving them some more -- I don't know if our guarantees, but targets by which they can rely on from a performance standpoint. So they're getting the capability. We have to have the responsibility for making sure that they have a mission requirements are met on a sustainment piece of the program, while at the same time, the economics come back to us that we've invested in the program. And then on Turkish Utility Helicopter program, that program is -- right now is a little bit on pause because we had the denial or exploration of an export license. So we can know -- there are certain elements of the program that we can no longer go forward with. And we're just in dialogue with the customer and how we go forward. And so that's probably the most open as far as risk programs that we have.

Got you. And just a follow-up on the Aero classified contract and then the Missiles and Fire Control. On the classified Aero program, are there any milestones that you can point to in the next year that might be events to take a positive [indiscernible] catch up? Or when sort of the next big kind of reassessment of whether you're on track?

Unfortunately, in both those classified programs, I really can't talk about objectives and milestones and achievements and things like that only because of the sensitivity of the programs themselves. Yes, I can't really -- yes. I mean, again, like I said, I think we're pretty well calibrated on both programs, and we're in a position where the program team can move forward with these resets and these program rebaselines and set them up for a successful delivery of this capability to our customer. That's what we're laser-focused on.

Fair enough. On Missiles and Fire Control, does the product actually work? Does the missile work, what you're working on there? Technically, is it hitting its objectives, cost side?

Again, I can't talk about what the capability is. The only thing I could say is that we -- good program continues to move forward in accordance with program schedules that we've got laid out. And I mean, that's as far as I can take it.

Okay. But presumably, there's some advantage to scaling that program, right? You guys want to actually. There's minimum quantities you have to deliver, just broad strokes on a contract like this. if you actually are able to overproduce if there's demand for it, there's an opportunity presumably to maybe reprice the overage? Or is that -- so are there benefits to scaling the program more quickly?

It's always possible. I mean just given the phase of where we are, -- that's probably a TBD is what I would say. I can't really comment much further on that.

I know it's a hard topic to discuss in an open forum.

I'd love to talk about. It just classified capability.

So on F-35, so what's the latest on the negotiations of the next lots?

Yes. Look, we've made a lot of progress on that negotiations, enough progress that we could enter into an undefinitized contract action at the end of 2024. There are a few kind of loose ends that we need to tie up with the customer to definitize the contract, and we expect that to occur in the first half here of this year. We had simultaneously or concurrently negotiated Lot 19 with the customer. And so we're in a good place there as well. However, that is subject to 2025 funding, so that we do need to have funding released for that budget for 2025 before the customer could award that to us. So we've kind of planned that for the back half of the year. But in both cases, I think from a negotiation standpoint, we continue to make good progress.

Yes. And speaking of budget, I mean, what is sort of your expectation, fiscal '26 budget request? Any sense for how that might shake out?

You read the same things that I do. And there's been -- at least you hear some of the congressional management members and some of the appropriation committees, armed service committees. And they're fairly bullish on what they believe is a requirement for higher budgets. We share the same opinion there. But this plenty that needs to be played out. We need to see what the administration comes out from a budget proposal. And I think it would be premature for me to try to front run that. I think DOGE, going back to DOGE that presents an opportunity from a, what I would refer to as addition by subtraction. If they cut costs in certain areas, I'll call it the entire budget that presents an opportunity to put some of those monies back into defense. And so those are opportunities. That's not a stated policy by anybody. But I think there's an opportunity as far as outlook and in terms of what we've talked about we're still on this kind of 1% from the prior administration is what we baked into our future forecast. And so anything above that would be upside.

Fair enough. Maybe if you could talk about some of the bigger foreign pursuits, you guys are chasing right now, international campaigns.

Yes. I mean there's a lot of activity. As you know, the F-35 platform continues to be a popular program. Romania just became the 20th customer, and we're proud of that to welcome them to the program. We've had dialogues with countries like Italy, Israel in terms of increasing their programs of record. And so that's another opportunity as well. We are in discussions with Türkiye on 40 aircraft by on F-16. That's a pretty sizable contract if we can get that over the goal line. And then there's just in Missiles and Fire Control. There's a ton of demand for whether they're integrated air and missile defense, things like PAC-3 or things like GMLRS. And what we're finding is countries want to put our HIMARS launcher on their vehicle. So a company -- a country like Poland, what they were referring to is a program referred to as HIMARS, which would be their vehicle that we put our GMLRS launchers on. So there's a lot of opportunity, a lot of demand and inquiries. And it's something that we look at strategically as well. Besides creating these opportunities and developing these opportunities with these countries, we also view coproduction in country as an opportunity to provide more resiliency in our supply chain. And so we view it as a win-win. Not only because you got a pursuit of campaign pursuit that you can win with a customer. You develop a long-standing relationship with them, develop an in-country production capability, and you've just made yourself more resilient globally.

Speaking of making yourself more resilient, you guys entered into an agreement for SRM with GD.

Correct.

What's sort of your expectations for when that's a viable production facility?

Yes. I mean it's probably going to take a couple of years. I think what we'll do over the next, I would say, a year or so is they've got to stand up their capability. We'll go through test and qualification of that. In that case, we will own the design of the solid rocket motor. They will do manufacturing for the final assembly we're also manufacture certain components, which will then go to GD to do final assembly. And so we have to complete the design. They have to go through their qualification for final assembly. We'll do testing events. I'd say, probably sometime in 2027, we'll probably start some low rate production.

Got you. Okay. One of the things we were also talking about earlier is those withholds on the on the F-35.

Yes.

So maybe what's the latest in terms of compact capability and the ability to...

Yes. So we continue to make progress on the program. We continue to make advances in making progress on integration, mission system integration. There's really 2 elements, completing mission system integration as well as improving system stability. And we continue to make really good progress in both cases. It's our stated goal as well as the Joint Program Office a stated goal to have a capability -- combat capability completed this year. Ultimately, the decision to declare combat capability is the customers. It's not ours. So we work with them and coordinate with them. But we're driving hard to work with our supply partners to provide them this capability and get it ready. What I would expect, and as I mentioned on the earnings call, that we'll continue to upgrade the system and that will go into 2026. And so we will have some withhold releases this year. And I would expect there to be more withhold releases in 2026 as well.

Got you. Lots of talk about Iron Dome. How would Lockheed play in that?

So again, you talk about our portfolio, and I kind of talked about it a little bit before, almost was a precursor. When you think about homeland defense and you bring our capability. First, we have battle management systems. We do battle management systems for the Navy, for MDA a number of customers. And so the Command & Control system, we have very good systems to provide. As I mentioned, things like Defense of Guam, Aegis Ashore. A lot of these things are portable to a larger continental U.S. protection system. We have the space awareness, missile warning, missile tracking, we've got those capabilities. We've got the integrated air and missile defense system. So you talk about multi-layers. So we've got PAC-3, we've got FAAD. We're on NGI, next-gen Interceptor, which NGI always was Homeland Defense already. And so when you bring in all those capabilities together, it's really right in our wheelhouse in terms of Iron Dome. And so we expect to be a thought leader on this overall system, and we expect it to be probably a system of systems as well. And so just to give you an example, and we talked about this in terms of our capability in Defense of Guam, we had a demonstration, again, where we used our -- Aegis Ashore system. We used our ground radars. We used our satellite systems, and we use a third-party effector, an interceptor, and we demonstrated that capability in the fourth quarter to our customer. And so that's just an example of what the capability that we can provide holistically as well as elements of a homeland defense system. So again, I think we're pretty excited about that system. We've got a lot to offer, and a lot of learnings to provide in terms of making sure that's the best system that the American can have.

Fair enough. We haven't talked about RMS in detail. Maybe talk about Sikorsky, the outlook beyond CH-53K.

Yes. Sikorsky over the next few years is going to see some pretty solid growth. This year, in 2025, there'll be double-digit growth on the back of CH-53K, Black Hawk increases as well as SEAHAWK increases. So that will continue into 2026 as well. And then it will start to flatten -- the Black Hawk and SEAHAWK will start to flatten off maybe decline period, but then CH-53 will continue to grow. So over maybe a 5-year period, you'll see probably a low single-digit growth there on the back of CH-53K. But over the next 2 years, it's going to be the strongest grower at RMS.

Got you. But beyond -- so your point is it will start to mean revert back down.

Yes, it will revert back. It will still -- like I said, the CAGR between now and '28, let's say, will still be a growth CAGR because of CH-53K.

Fair enough. Space, obviously, strategically important competitive in launch in satellites, kind of what's the long-term outlook for Lockheed in that domain? What strengths do you guys have to...

Yes. I mean space, when you look at their businesses and they have, call it, 3 different businesses. They've got national security space, which they're $11 billion, $12 billion segment. A little bit over half of that is in natural security space. Then you've got commercial civil. And then you've got strategic and missile defense. And their highest grower by far is going to be strategic in missile defense. On the back, we talked about the Trident, which is going through a modernization. We've got hypersonics in there too, the long-range hypersonic weapon as well as the conventional prompt strike. And then we've got next-gen Interceptor, which will -- is growing this year. And then we also have these glide -- the glide phase bodies that will grow as well as part of other programs. And so that will be the strongest grower, I think, at least mid-single-digit growth over the next probably 3 to 5 years. The national security space, which is the biggest piece of it, it's because of program life cycles, it would be flattish to slightly up. And so while you've got these proliferated architectures, things like SDA, transport layer, tracking layer, and we're participating in all of those programs. Those programs themselves are growing, but we also got legacy programs like SBIRS and next-gen GEO, which will be cycling down. And so they will kind of intersect, which will mute growth in the national security space. And same thing with the commercial and civil. The Orion will flatten out that program, and we're on contract for a number of capsules, but again, it will be more flattish type. So strategic missile defense is what will be the source of growth for our Space segment.

Terrific. Thank you very much, Jay.

Thank you, Gautam. I appreciate being here and appreciate representing Lockheed Martin.

Thank you.

Thank you all.